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ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

9 Months Ended

Sep. 30, 2019

ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

Allowance For Loan Losses and Credit Quality [Text Block]

NOTE 4. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

The following tables present the activity in the allowance for loan losses by portfolio segment for the three-month periods ended September 30, 2019 and 2018:

Commercial

Real Estate

Commercial

and

Agri-business

Consumer

and

Multifamily

and

Other

1-4 Family

Other

(dollars in thousands)

Industrial

Residential

Agricultural

Commercial

Mortgage

Consumer

Unallocated

Total

Three Months Ended September 30, 2019

Beginning balance, July 1

25,024

15,492

3,906

355

2,153

289

3,345

50,564

Provision for loan losses

943

474

(4)

(93)

(415)

1,000

Loans charged-off

(1,123)

(23)

(75)

(1,221)

Recoveries

133

285

Net loans charged-off

(990)

(52)

(936)

Ending balance

24,977

16,010

3,904

383

2,120

304

2,930

50,628


			Commercial
			Real Estate
	Commercial		and		Agri-business				Consumer
	and		Multifamily		and		Other		1-4 Family		Other
(dollars in thousands)	Industrial		Residential		Agricultural		Commercial		Mortgage		Consumer		Unallocated		Total
Three Months Ended September 30, 2018
Beginning balance, July 1	$	22,524	$	14,954	$	4,585	$	464	$	1,953	$	266	$	2,960	$	47,706
Provision for loan losses		952		140		(506)		(23)		321		62		154		1,100
Loans charged-off		(474)		0		0		0		(24)		(83)		0		(581)
Recoveries		69		7		5		0		6		31		0		118
Net loans charged-off		(405)		7		5		0		(18)		(52)		0		(463)
Ending balance	$	23,071	$	15,101	$	4,084	$	441	$	2,256	$	276	$	3,114	$	48,343

The following tables present the activity in the allowance for loan losses by portfolio segment for the nine-month periods ended September 30, 2019 and 2018:

Commercial

Real Estate

Commercial

and

Agri-business

Consumer

and

Multifamily

and

Other

1-4 Family

Other

(dollars in thousands)

Industrial

Residential

Agricultural

Commercial

Mortgage

Consumer

Unallocated

Total

Nine Months Ended September 30, 2019

Beginning balance, January 1

22,518

15,393

4,305

368

2,292

283

3,294

48,453

Provision for loan losses

3,260

461

(407)

(172)

192

(364)

2,985

Loans charged-off

(1,223)

(110)

(256)

(1,589)

Recoveries

422

156

110

779

Net loans charged-off

(801)

156

(171)

(810)

Ending balance

24,977

16,010

3,904

383

2,120

304

2,930

50,628


			Commercial
			Real Estate
	Commercial		and		Agri-business				Consumer
	and		Multifamily		and		Other		1-4 Family		Other
(dollars in thousands)	Industrial		Residential		Agricultural		Commercial		Mortgage		Consumer		Unallocated		Total
Nine Months Ended September 30, 2018
Beginning balance, January 1	$	21,097	$	14,714	$	4,920	$	577	$	2,768	$	379	$	2,666	$	47,121
Provision for loan losses		6,246		855		(850)		(136)		(541)		78		448		6,100
Loans charged-off		(4,891)		(491)		0		0		(31)		(273)		0		(5,686)
Recoveries		619		23		14		0		60		92		0		808
Net loans charged-off		(4,272)		(468)		14		0		29		(181)		0		(4,878)
Ending balance	$	23,071	$	15,101	$	4,084	$	441	$	2,256	$	276	$	3,114	$	48,343

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2019 and December 31, 2018:

Commercial

Real Estate

Commercial

and

Agri-business

Consumer

and

Multifamily

and

Other

1-4 Family

Other

(dollars in thousands)

Industrial

Residential

Agricultural

Commercial

Mortgage

Consumer

Unallocated

Total

September 30, 2019

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment

9,231

702

405

10,428

Collectively evaluated for impairment

15,746

15,308

3,814

383

1,715

304

2,930

40,200

Total ending allowance balance

24,977

16,010

3,904

383

2,120

304

2,930

50,628

Loans:

Loans individually evaluated for impairment

20,123

4,919

430

2,608

28,080

Loans collectively evaluated for impairment

1,412,274

1,673,467

329,642

99,969

389,415

90,374

3,995,141

Total ending loans balance

1,432,397

1,678,386

330,072

99,969

392,023

90,374

4,023,221


			Commercial
			Real Estate
	Commercial		and		Agri-business				Consumer
	and		Multifamily		and		Other		1-4 Family		Other
(dollars in thousands)	Industrial		Residential		Agricultural		Commercial		Mortgage		Consumer		Unallocated			Total
December 31, 2018
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	8,552	$	921	$	73	$	0	$	457	$	26	$	0	$	10,029
Collectively evaluated for impairment		13,966		14,472		4,232		368		1,835		257		3,294		38,424
Total ending allowance balance	$	22,518	$	15,393	$	4,305	$	368	$	2,292	$	283	$	3,294	$	48,453

Loans:
Loans individually evaluated for impairment	$	19,734	$	4,266	$	433	$	0	$	2,240	$	44	$	0	$	26,717
Loans collectively evaluated for impairment		1,385,604		1,562,899		370,174		95,520		388,053		85,778		0		3,888,028
Total ending loans balance	$	1,405,338	$	1,567,165	$	370,607	$	95,520	$	390,293	$	85,822	$	0	$	3,914,745

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2019:


	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
(dollars in thousands)	Balance		Investment		Allocated
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$	251	$	250	$	0
Non-working capital loans		4,189		2,110		0
Commercial real estate and multi-family residential loans:
Owner occupied loans		3,424		3,244		0
Agri-business and agricultural loans:
Loans secured by farmland		603		283		0
Consumer 1‑4 family loans:
Closed end first mortgage loans		290		209		0
Open end and junior lien loans		137		137		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		6,208		6,208		3,056
Non-working capital loans		11,547		11,555		6,175
Commercial real estate and multi-family residential loans:
Owner occupied loans		1,675		1,675		702
Agri-business and agricultural loans:
Loans secured by farmland		147		147		90
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,618		1,622		352
Open end and junior lien loans		641		640		53
Total	$	30,730	$	28,080	$	10,428

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2018:


	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
(dollars in thousands)	Balance		Investment		Allocated
With no related allowance recorded:
Commercial and industrial loans:
Non-working capital loans	$	3,284	$	1,889	$	0
Commercial real estate and multi-family residential loans:
Owner occupied loans		1,773		1,527		0
Agri-business and agricultural loans:
Loans secured by farmland		603		283		0
Consumer 1‑4 family loans:
Closed end first mortgage loans		583		502		0
Open end and junior lien loans		220		220		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		9,691		6,694		2,602
Non-working capital loans		11,099		11,151		5,950
Commercial real estate and multi-family residential loans:
Construction and land development loans		291		291		142
Owner occupied loans		2,938		2,448		779
Agri-business and agricultural loans:
Loans secured by farmland		150		150		73
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,517		1,518		457
Other consumer loans		45		44		26
Total	$	32,194	$	26,717	$	10,029

The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended September 30, 2019:


					Cash Basis
	Average		Interest		Interest
	Recorded		Income		Income
(dollars in thousands)	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$	165	$	2	$	2
Non-working capital loans		1,394		1		1
Commercial real estate and multi-family residential loans:
Owner occupied loans		3,266		7		7
Agri-business and agricultural loans:
Loans secured by farmland		283		0		0
Consumer 1‑4 family loans:
Closed end first mortgage loans		211		0		0
Open end and junior lien loans		137		0		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		6,313		0		0
Non-working capital loans		12,088		96		96
Commercial real estate and multi-family residential loans:
Owner occupied loans		1,676		8		8
Agri-business and agricultural loans:
Loans secured by farmland		147		0		0
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,625		10		9
Open end and junior lien loans		433		0		0
Total	$	27,738	$	124	$	123

The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended September 30, 2018:


					Cash Basis
	Average		Interest		Interest
	Recorded		Income		Income
(dollars in thousands)	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$	955	$	13	$	7
Non-working capital loans		2,027		19		17
Commercial real estate and multi-family residential loans:
Construction and land development loans		41		1		1
Owner occupied loans		1,903		9		11
Agri-business and agricultural loans:
Loans secured by farmland		283		0		0
Consumer 1‑4 family loans:
Closed end first mortgage loans		503		3		3
Open end and junior lien loans		244		0		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		4,019		6		6
Non-working capital loans		6,385		37		19
Commercial real estate and multi-family residential loans:
Construction and land development loans		307		5		8
Owner occupied loans		2,183		0		0
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,374		14		13
Other consumer loans		46		1		0
Total	$	20,270	$	108	$	85

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine-month period ended September 30, 2019:


					Cash Basis
	Average		Interest		Interest
	Recorded		Income		Income
(dollars in thousands)	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$	203	$	7	$	8
Non-working capital loans		1,292		39		29
Commercial real estate and multi-family residential loans:
Owner occupied loans		2,112		28		28
Agri-business and agricultural loans:
Loans secured by farmland		283		0		0
Consumer 1‑4 family loans:
Closed end first mortgage loans		251		2		3
Open end and junior lien loans		141		0		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		6,375		143		81
Non-working capital loans		11,536		355		326
Commercial real estate and multi-family residential loans:
Owner occupied loans		1,840		37		31
Agri-business and agricultural loans:
Loans secured by farmland		147		3		1
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,634		35		34
Open end and junior lien loans		145		0		0
Other consumer loans		24		2		1
Total	$	25,983	$	651	$	542

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine-month period ended September 30, 2018:


					Cash Basis
	Average		Interest		Interest
	Recorded		Income		Income
(dollars in thousands)	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans	$	992	$	26	$	23
Non-working capital loans		1,831		50		48
Commercial real estate and multi-family residential loans:
Construction and land development loans		77		4		4
Owner occupied loans		2,443		25		25
Agri-business and agricultural loans:
Loans secured by farmland		283		0		0
Consumer 1‑4 family loans:
Closed end first mortgage loans		526		7		7
Open end and junior lien loans		194		0		0
With an allowance recorded:
Commercial and industrial loans:
Working capital lines of credit loans		2,878		10		9
Non-working capital loans		4,371		42		25
Commercial real estate and multi-family residential loans:
Construction and land development loans		506		22		26
Owner occupied loans		1,473		1		1
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		1,112		29		27
Open end and junior lien loans		51		0		0
Other consumer loans		48		2		2
Total	$	16,785	$	218	$	197

The following table presents the aging of the recorded investment in past due loans as of September 30, 2019 by class of loans:

30‑89

Greater than

Total Past

Loans Not

Days

90 Days

Due and

(dollars in thousands)

Past Due

Nonaccrual

Total

Commercial and industrial loans:

Working capital lines of credit loans

724,404

6,309

730,713

Non-working capital loans

695,127

6,515

6,557

701,684

Commercial real estate and multi-family residential loans:

Construction and land development loans

318,369

Owner occupied loans

552,276

3,952

556,228

Nonowner occupied loans

544,778

Multifamily loans

259,011

Agri-business and agricultural loans:

Loans secured by farmland

175,604

430

436

176,040

Loans for agricultural production

154,017

154,032

Other commercial loans

99,969

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans

185,219

850

307

675

1,832

187,051

Open end and junior lien loans

192,365

101

777

878

193,243

Residential construction loans

11,677

11,729

Other consumer loans

90,236

138

90,374

Total

4,003,052

1,204

307

18,658

20,169

4,023,221

The following table presents the aging of the recorded investment in past due loans as of December 31, 2018 by class of loans:


					Greater than
			30‑89		90 Days Past				Total Past
	Loans Not		Days		Due and Still				Due and
(dollars in thousands)	Past Due		Past Due		Accruing		Nonaccrual		Nonaccrual		Total
Commercial and industrial loans:
Working capital lines of credit loans	$	684,191	$	4,328	$	0	$	2,245	$	6,573	$	690,764
Non-working capital loans		709,629		3,368		0		1,577		4,945		714,574
Commercial real estate and multi-family residential loans:
Construction and land development loans		265,544		0		0		0		0		265,544
Owner occupied loans		583,214		486		0		2,269		2,755		585,969
Nonowner occupied loans		520,431		57		0		0		57		520,488
Multi-family loans		195,164		0		0		0		0		195,164
Agri-business and agricultural loans:
Loans secured by farmland		177,080		150		0		283		433		177,513
Loans for agricultural production		193,094		0		0		0		0		193,094
Other commercial loans		95,520		0		0		0		0		95,520
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		183,420		1,370		0		671		2,041		185,461
Open end and junior lien loans		188,320		98		0		220		318		188,638
Residential construction loans		16,194		0		0		0		0		16,194
Other consumer loans		85,654		168		0		0		168		85,822
Total	$	3,897,455	$	10,025	$	0	$	7,265	$	17,290	$	3,914,745

Troubled Debt Restructurings:

Troubled debt restructured loans are included in the totals for impaired loans. The Company has allocated $2.7 million and $3.7 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2019 and December 31, 2018, respectively. The Company is not committed to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring.


	September 30		December 31
(dollars in thousands)	2019		2018
Accruing troubled debt restructured loans	$	5,975	$	8,016
Nonaccrual troubled debt restructured loans		3,422		4,384
Total troubled debt restructured loans	$	9,397	$	12,400

During the three months ended September 30, 2019, no loans were modified as troubled debt restructurings.

During the nine months ending September 30, 2019, certain loans were modified as troubled debt restructurings. The modified terms of these loans include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a modification of the repayment terms which delays principal repayment for some period; or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal.

Additional concessions were granted to borrowers with previously identified troubled debt restructured loans during the period. One of the loans is for a commercial real estate building where the cash flow does not support the loan with a recorded investment of $533,000. The other loan is for commercial and industrial non-working capital purposes and this borrower had a recorded investment of $70,000 that was subsequently paid off prior to March 31, 2019. These concessions are not included in table below.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the nine months ended September 30, 2019:

Modified Repayment Terms

Pre-Modification

Post-Modification

Extension

Outstanding

Period or

Number of

Recorded

Number of

Range

(dollars in thousands)

Loans

Investment

Loans

(in months)

Troubled Debt Restructurings

Commercial and industrial loans:

Working capital lines of credit loans

Total

For the three month and nine month periods ending September 30, 2019, the troubled debt restructurings described above did not impact the allowance for loan losses and no charge-offs were recorded.

During the three months ending September 30, 2018, two commercial and industrial loans were modified as troubled debt restructurings due to a modification of the repayment terms which delays principal repayment for an extended period of time. These concessions are included in the table below.

Additional concessions were granted to borrowers with previously identified troubled debt restructured loans during the three-month period ended September 30, 2018. The loan to one of the borrowers is for a commercial real estate building where the collateral value and cash flows from the company occupying the building do not support the loan with a recorded investment of $852,000. The loan to another one of the borrowers is for a vacant commercial real estate building that does not generate cash flow to support the loan with a recorded investment of $321,000. The other loans are to a borrower for an investment in land for residential development which has not had sales activity to support loans with a recorded investment of $109,000. These troubled debt restructured loans with additional concessions decreased the allowance by $7,000 as a result of payments received during the period and resulted in no charge-offs for the three-month period ending September 30, 2018. These concessions are not included in the table below.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the three months ended September 30, 2018:

Modified Repayment Terms

Pre-Modification

Post-Modification

Extension

Outstanding

Period or

Number of

Recorded

Number of

Range

(dollars in thousands)

Loans

Investment

Loans

(in months)

Troubled Debt Restructurings

Commercial and industrial loans:

Non-working capital loans

824

0-6

Total

824

0-6

During the nine months ended September 30, 2018, certain loans were modified as troubled debt restructurings. The modified terms of these loans include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a modification of the repayment terms which delays principal repayment for some period; or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal. These concessions are included in the table below.

Additional concessions were granted to borrowers with previously identified troubled debt restructured loans during the nine-month period ended September 30, 2018. There were three commercial real estate loans with recorded investments totaling $1.3 million and three commercial and industrial loans with recorded investments totaling $1.4 million where the collateral value and/or cash flows do not support those loans. The other three loans are to borrowers for investments in land for residential development which have not had sales activity to support loans with a recorded investments totaling $593,000. These troubled debt restructured loans with additional concessions increased the allowance by $255,000 and resulted in no charge-offs for the nine-month period ending September 30, 2018. These concessions are not included in the table below.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the nine months ended September 30, 2018:


						Modified Repayment Terms
		Pre-Modification		Post-Modification			Extension
		Outstanding		Outstanding			Period or
	Number of	Recorded		Recorded		Number of	Range
(dollars in thousands)	Loans	Investment		Investment		Loans	(in months)
Troubled Debt Restructurings
Commercial and industrial loans:
Working capital lines of credit loans	1		600		600	1	0
Non-working capital loans	4		2,244		2,244	4	0-6
Commercial real estate and multi-family residential loans:
Construction and land development loans	1		824		824	1	12
Owner occupied loans	1		387		387	1	12
Consumer 1‑4 family loans:
Closed end first mortgage loans	1		198		197	1	239
Total	8	$	4,253	$	4,252	8	0‑239

For the three-month period ended September 30, 2018, the troubled debt restructuring described above did not impact the allowance for loan losses and no charge-off was recorded. For the nine-month period ending September 30, 2018, the commercial real estate and multi-family residential troubled debt restructurings described above decreased the allowance for loan losses by $196,000, and resulted in charge-offs of $1.6 million. All other troubled debt restructurings described above had no impact to the allowance and no charge-offs were recorded for the nine month period ending September 30, 2018.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current

economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis for Special Mention, Substandard and Doubtful grade loans and annually on Pass grade loans over $250,000.

The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as Special Mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be Pass rated loans with the exception of consumer troubled debt restructurings which are evaluated and listed with Substandard commercial grade loans and consumer nonaccrual loans which are evaluated individually and listed with Not Rated loans. Loans listed as Not Rated are consumer loans or commercial loans with consumer characteristics included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status.

As of September 30, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Special

Not

(dollars in thousands)

Pass

Mention

Substandard

Doubtful

Rated

Total

Commercial and industrial loans:

Working capital lines of credit loans

635,786

56,133

38,538

256

730,713

Non-working capital loans

655,100

19,066

22,364

5,154

701,684

Commercial real estate and multi-family residential loans:

Construction and land development loans

318,369

Owner occupied loans

516,448

16,162

23,618

556,228

Nonowner occupied loans

542,717

1,456

605

544,778

Multifamily loans

259,011

Agri-business and agricultural loans:

Loans secured by farmland

163,731

11,055

1,254

176,040

Loans for agricultural production

143,123

10,909

154,032

Other commercial loans

99,969

Consumer 1‑4 family mortgage loans:

Closed end first mortgage loans

49,839

1,830

135,382

187,051

Open end and junior lien loans

11,067

777

181,399

193,243

Residential construction loans

11,729

Other consumer loans

16,036

74,338

90,374

Total

3,411,196

114,781

88,986

408,258

4,023,221

As of December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


			Special						Not
(dollars in thousands)	Pass		Mention		Substandard		Doubtful		Rated		Total
Commercial and industrial loans:
Working capital lines of credit loans	$	618,612	$	43,240	$	28,563	$	0	$	349	$	690,764
Non-working capital loans		664,787		15,992		27,548		0		6,247		714,574
Commercial real estate and multi-family residential loans:
Construction and land development loans		264,900		353		291		0		0		265,544
Owner occupied loans		541,734		21,864		22,371		0		0		585,969
Nonowner occupied loans		517,356		2,491		641		0		0		520,488
Multifamily loans		194,948		216		0		0		0		195,164
Agri-business and agricultural loans:
Loans secured by farmland		166,623		9,107		1,783		0		0		177,513
Loans for agricultural production		183,189		8,155		1,750		0		0		193,094
Other commercial loans		95,516		0		0		0		4		95,520
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans		54,879		0		2,021		0		128,561		185,461
Open end and junior lien loans		8,810		0		220		0		179,608		188,638
Residential construction loans		0		0		0		0		16,194		16,194
Other consumer loans		12,700		0		44		0		73,078		85,822
Total	$	3,324,054	$	101,418	$	85,232	$	0	$	404,041	$	3,914,745